ACIT 17(3), MUMBAI V. CHARAK PHARMACEUTICALS, MUMBAI

ITA 4667/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55522 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-10-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 04-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALEXANDER CHANDY
• Assessee Lawyers: ASHOK J PATIL
• Keywords: Reopening of assessment; Business expenditure; Bad and doubtful debts; Difference of opinion; Change of opinion
• Section: 143(3); 148; 6; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI C BENCH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A.NO.4667/MUM/2010 A.Y 2001-02 DY. COMMISSIONER OF I.T. 18(3), MUMBAI. VS. M/S. CHARAK PHARMACEUTICALS, EVERGREEN INDL. ESTATE, SHAKTI MILLS LANE, MAHALAXMI, MUMBAI 400 011. PAN: AAAFC 0238 N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ALEXANDER CHANDY. RESPONDENT BY : SHRI ASHOK J. PATIL. DATE OF HEARING: 05-10-2011 DATE OF PRONOUNCEMENT: 14-10-2011 O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING G ROUNDS: (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.C.I.T(A) ERRED IN TREATING THE ASSTT. M ADE U/S.143(3) R.W.S. 147 AS NULL AND VOID WITHOUT TAKI NG INTO CONSIDERATION ALL MATERIAL FACTS ON RECORD. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.C.I.T(A) ERRED IN NOT DECIDING MERIT OF THE ADDITIONS MADE WITHOUT CONSID ERING THE INFORMATION AVAILABLE IN NOTES TO ASSESSEES AU DITED ACCOUNT. 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT ORI GINALLY ASSESSMENT WAS COMPLETED U/S.143[3] ON 24-3-2004. L ATER ON NOTICE U/S.148 WAS SERVED ON THE ASSESSEE ON 18-3-2008. TH IS NOTICE HAS BEEN ISSUED AFTER FOUR YEARS AND THE NOTICE WAS MAI NLY ISSUED ON THE BASIS THAT THE ORIGINAL ASSESSMENT WAS COMPLETED U/ S.143[3] BUT A SUM ITA NO.4667 OF 2010 2 OF RS.24,43,810/- BEING AMOUNT WRITTEN BACK FROM SU NDRY CREDITORS HAS NOT BEEN OFFERED FOR TAX U/S.41 OF THE ACT. [CLAUSE 10 OF PART B OF THE NOTICE ON ACCOUNTS AS PER SCHEDULE 18 OF THE AUDIT REPORT]. BEFORE THE AO ASSESSEE OBJECTED TO THE RE-ASSESSMENT AND ON ME RITS IT WAS SUBMITTED AS UNDER: 2.5 WE ARE ENCLOSING HEREWITH THE LIST OF THE CREDI TORS WITH LEDGER ACCOUNTS INCLUDING LEDGER ACCOUNTS OF EARLIER YEARS TO WHOSE BALANCES HAS BEEN DEBITED TO PROFIT & LOSS ACCOUNT. FURTHER SAID LIST OF SUNDRY BALANCES WRITTEN OFF OF RS26,97,048/- INCLUDES DEBI T BALANCE OF CREDITORS WRITTEN OFF OF RS24,43,810/- AND BALANCE AMOUNT REPRESENT RS.2,53,236/- WRITTEN OFF BAD DEBTS OF RS.2,53,236/ -. HOWEVER, AO DID NOT AGREE WITH THIS CONTENTION AND MADE AN ADDITION OF RS.24,43,810/-. 3. BEFORE THE LD. CIT[A] IT WAS MAINLY SUBMITTED TH AT ASSESSMENT HAD BEEN REOPENED AFTER FOUR YEARS FROM THE END OF THE ASSESSMENT ORDER AND ORIGINAL ASSESSMENT WAS COMPLETED U/S.143 [3]. THEREFORE, PROVISO TO SEC.147 WOULD BE APPLICABLE. IT WAS A CA SE OF MERE CHANGE OF OPINION AND RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS: A) GERMAN REMEDIES VS. CIT 285 ITR 26 (BOM) B) HINDUSTAN LEVER LTD. VS. CIT 268 ITR 332 (BOM) C) AJANTHA PHARMA LTD. VS. CIT 267 ITR 200 (BOM) D) CIT VS. KELVINATOR OF INDIA LTD. 256 ITR 1 (DEL) THE LD. CIT[A] HELD THE REOPENING OF THE ASSESSMENT TO BE INVALID VIDE PARA 3.3. WHICH IS AS UNDER: 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, ARGUMENTS OF THE AO AND THE WRITTEN SUBMISSIONS OF THE AR OF THE APPELLANT. I FIND THAT THE ORIGINAL ASSESSMENT HAS BEEN COMPLETED U/S .143(3) AND THE REOPENING HAS BEEN DONE AFTER A LAPSE OF NEARLY YEA RS FROM THE END OF THE ASSESSMENT YEAR AND BEFORE COMPLETION OF 6 YEAR S. A PER THE PROVISIONS OF SECTION 147 REOPENING OF ASSESSMENT I S PERMISSIBLE AFTER ITA NO.4667 OF 2010 3 A LAPSE OF YEARS ONLY IF ANY INCOME CHARGEABLE TO T AX HAS ESCAPED ASSESSMENT BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139, ETC. OR TO DISCLOS E FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THA T ASSESSMENT YEAR. IN THIS CASE THE APPELLANT HAS DISCLOSED ALL MATERI AL FACTS BEFORE THE AO AND IN FACT THE REASONING FOR REOPENING IS BASED ON NOTES TO ACCOUNTS ONLY. THERE IS NO FAILURE ON THE PART OF T HE APPELLANT TO DISCLOSE TRULY AND FULLY ANY MATERIAL FACTS. THE OR IGINAL ASSESSMENT HAS BEEN COMPLETED U/S.143(3) AFTER EXAMINING ALL DETAI LS, AFTER SCRUTINY. THERE IS NO EXTRANEOUS INFORMATION WHICH IS FOUND O UT BY THE AO WARRANTING REOPENING. THE LAW IS SETTLED ON THIS IS SUE. THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN GERMAN REMEDIES VS. CIT 285 ITR 26, HINDUSTAN LEVER LIMITED VS. CIT 268 ITR 332, AJ ANTHA PHARMA LTD VS. CIT 267 ITR 200 CLEARLY HOLD THAT NO REOPENING IS POSSIBLE ON THE BASIS OF MERE CHANGE OF OPINION. THIS IS ALSO SUPPO RTED BY THE DECISION OF KELVINATOR INDIA LTD. 256 ITR 1 (DEL) . THEREFORE REOPENING UNDER SECTION 147 CANNOT BE SUSTAINED. THE REOPENIN G IS HELD TO BE INVALID AND THIS GROUND OF APPEAL IS ALLOWED. 4. BEFORE US, LD. DR SUBMITTED THAT ASSESSMENT HAS BEEN BASICALLY REOPENED ON THE BASIS OF THE REVENUE AUDIT OBJECTIO N AND IN THIS REGARD HE REFERRED TO THE LAST PAGE OF THE ASSESSMENT ORDE R WHEREIN THIS FACT IS MENTIONED AS OFFICE NOTE NO.2. ACCORDING TO HIM, REVENUE AUDIT HAS ONLY POINTED OUT A FACTUAL DEFECT, THEREFORE, THE A SSESSMENT COULD BE REOPENED. HOWEVER, HE COULD NOT POINT OUT HOW ASSES SEE HAS FAILED TO DISCLOSE ANY MATERIAL FACTS IN THE ORIGINAL RETURN. 5. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT[A]. HE ALSO POI NTED OUT THAT IT WAS CLEARLY EXPLAINED TO THE AO THAT THE AMOUNT OF RS.24,43,810/- IS PART OF THE AMOUNT OF RS.26,97,048/- WHICH HAS BEEN SHOWN AS DEBIT ENTRY IN THE PROFIT & LOSS ACCOUNT. HE SUBMITTED TH AT, IN FACT, THIS AMOUNT WAS WRITTEN OFF AND NO WRITTEN BACK AND AO H AS NOT UNDERSTOOD THE ISSUE PROPERLY. HE ALSO FILED A COPY OF THE BALANCE- SHEET AND PROFIT & LOSS ACCOUNT AND POINTED OUT THA T THIS AMOUNT WAS ITA NO.4667 OF 2010 4 INCLUDED UNDER THE HEAD ADMINISTRATION EXPENSES D ETAILS OF WHICH ARE GIVEN IN SCHEDULE 15. THEN HE REFERRED TO SCHEDULE 15 AND POINTED OUT THAT A SUM OF RS.26,97,048/- WAS WRITTEN OFF AND BO OKED AS EXPENDITURE. IN FACT, THE ASSESSEE HAS MADE SOME AD VANCES TO THE SUPPLIERS WHICH COULD NOT BE RECOVERED AND, THEREFO RE, THIS AMOUNT WAS WRITTEN OFF. THE AMOUNT WRITTEN OFF CANNOT BE T AXED U/S.41[1]. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. PROVISO TO SEC.147 READS AS UNDER: PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE R ELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THI S SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REAS ON OF THE FAILURE26 ON THE PART OF THE ASSESSEE TO MAKE A RET URN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUBSECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FU LLY AND TRULY ALL MATERIAL FACTS26 NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR: THE ABOVE MAKES IT VERY CLEAR THAT ASSESSMENT CANNO T BE REOPENED IF ORIGINAL ASSESSMENT HAS BEEN COMPLETED U/S.143[3] A ND THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. NEITHER AO HAS RECO RDED ANY SUCH FACT IN THE ASSESSMENT ORDER WHILE DISCUSSING THE REASON S FOR REOPENING, NOR LD. DR HAS POINTED OUT THE MATERIAL FACTS WHICH HAVE NOT BEEN DISCLOSED BY THE ASSESSEE. THEREFORE, IN OUR OPINIO N, THE ASSESSMENT COULD NOT HAVE BEEN REOPENED. IN ANY CASE, BEFORE T HE LD.CIT[A] ON MERITS IT WAS SUBMITTED AS UNDER: ITA NO.4667 OF 2010 5 3.3.2 THE APPELLANT HAS MADE FOLLOWING SUBMISSIONS . WITHOUT PREJUDICE TO GROUND NO. 1, THE LEARNED ASS ESSING OFFICER HAS ERRED IN MAKING ADDITION OF RS.24,43,810/- ON THE P RETEXT THAT APPELLANT HAS FAILED TO OFFER FOR TAX WRITE BACK OF CREDITORS U/S 41 OF THE INCOME TAX ACT, 1961. FT IS SUBMITTED THAT THE SAID ADDITION IS MADE WITHOUT CONSIDERING THE FACTS AND EXPLANATIONS OF THE APPELLANT. ACCORDINGLY, IT IS PRAYED TO YOUR HONOUR TO DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION MADE OF RS. 24,43,81 0/-. 4.1 WITH REGARD TO THE SAID GROUND WE ARE PRODUCING THE SUBMISSION MADE BEFORE THE LEARNED ASSESSING OFFICER VIDE OUR LETTER DATED 10. 12.2008: WITH REGARD TO FIRST POINT, IT MAY BE CLARIFIED TH AT ASSESSEE HAS WRITTEN OFF THE DEBIT BALANCES LYING IN THE ACCOUNT OF SUNDRY CREDITORS AND ACCORDINGLY, THE AMOUNT IS WRITTEN OFF AND NOT WRITTEN BACK. ACCORDINGLY, REASONS RECORDED SHOWS THAT SAID BALAN CES ARE WRITTEN BACK AND NOT OFFERED FOR TAX U/S 41 OF INCOME TAX A CT, 1961, HOWEVER, THE SAID MATTER IS FACTUALLY INCORRECT AND WE WOULD ALSO LIKE TO REPRODUCED THE NOTE NO. 10 IN SCHEDULE NO. 18 OF THE ANNUAL ACCOUNTS. 10) I) DURING THE YEAR SUNDRY CREDITORS AMOUNTING TO RS. 24,43,810/- (PREVIOUS YEAR RS. 58,626/-) HAVE BEEN W RITTEN OFF AGAINST SUNDRY EXPENSES. II) ALSO, DURING THE YEAR, THE FIRM HAD WRITTEN OFF BAD DEBTS AMOUNTING TO RS.2,53,236/- (PREVIOUS YEAR RS.NIL). 2.3 IT IS SUBMITTED THAT SCHEDULE 15 OF ANNUAL ACCO UNTS SHOWS SUNDRY BALANCES WRITTEN OFF OF RS.26,97,048/- AND THE SAME HAS BEEN EXPLAINED IN NOTES AS MENTIONED ABOVE. 2.4 IT IS SUBMITTED THAT VARIOUS PAYMENTS ARE MADE TO CREDITORS AND BILLS AGAINST SAME HAS NOT CAME AND ACCORDINGLY, EX PENSES OF THE AMOUNT HAS REMAINED TO BE RECORDED IN ACCOUNTS. ACC ORDINGLY, CERTAIN CREDITORS ACCOUNTS HAS SHOWN DEBIT BALANCES HOWEVER , THE SAME ARE NOT RECOVERABLE AND ACCORDINGLY, WRITTEN OFF AND DE BITED TO PROFIT & LOSS ACCOUNT. 2.5 WE ARE ENCLOSING HEREWITH THE LIST OF THE CREDI TORS WITH LEDGER ACCOUNTS INCLUDING LEDGER ACCOUNTS OF EARLIER YEARS TO WHOSE BALANCES HAS BEEN DEBITED TO PROFIT & LOSS ACCOUNT. FURTHER SAID LIST OF SUNDRY BALANCES WRITTEN OFF OF RS.26,97,048/- INCLUDES DEB IT BALANCE OF CREDITORS WRITTEN OFF OF RS.24,43,810/- AND BALANCE AMOUNT REPRESENT RS. 2,53,236/- WRITTEN OFF BAD DEBTS OF RS. 2,53,23 6/-. IN VIEW OF THE ABOVE, WE WOULD LIKE TO STATE THAT N O ADVERSE INFERENCE SHOULD BE DRAWN. 4.2 WITH REGARD TO THE SAID ADDITION WE WOULD LIKE TO STATE THAT THE LEARNED ASSESSING OFFICER HAS GROSSLY FAILED TO UND ERSTAND THE FACTS OF THE CASE. IT IS SUBMITTED THAT THE APPELLANT HAS AC TUALLY WRITTEN OFF THE OLD DEBIT BALANCES OF SUNDRY CREDITORS AMOUNTING TO RS.24,43,810/- DURING THE YEAR UNDER CONSIDERATION. IT IS SUBMITTE D THAT THE ALL THE DETAILS OF SUCH BALANCES WERE PROVIDED TO THE LEARN ED ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDING. HOWEVER IT IS SUB MITTED THAT THE LEARNED ASSESSING OFFICER ERRED IN STATING AS UNDER : THE SUBMISSION OF THE ASSESSEE IS FOUND NOT ACCEPT ABLE AND AS THE ASSESSEE HAS FAILED TO WRITE BACK THE SUNDRY CREDIT ORS AMOUNTING TO ITA NO.4667 OF 2010 6 RS. 24,43,810/- (CLAUSE 10 OF PART B OF NOTES ON AC COUNTS AS PER SCHEDULE 18 OF AUDIT REPORT) AND AS THE SAME HAS NO T BEEN OFFERED TO TAX U/S 41 OF I. T. ACT. THEREFORE SAME IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4.3 IT IS SUBMITTED THAT THE LEARNED ASSESSING OFFI CER HAS ERRED IN TREATING THE DEBIT BALANCES OF SUNDRY CREDITORS AS CREDIT BALANCES AND MADE ADDITIONS BY STATING THAT THE SAME HAS NOT BEE N OFFERED TO TAX U/S 41 OF INCOME TAX. IT IS SUBMITTED THAT THE LEAR NED ASSESSING OFFICER HAS ERRED IN MAKING ADDITIONS WITHOUT CONSI DERING THE DETAILS AND EXPLANATION PROVIDED DURING THE ASSESSMENT PROC EEDINGS. ACCORDINGLY IT IS PRAYED TO YOUR HONOUR TO DELETE S UCH ADDITIONS AND GIVE THE NECESSARY DIRECTION IN THIS REGARD. THE ABOVE CLEARLY SHOWS THAT THE AMOUNT WAS BASICAL LY WRITTEN OFF. SINCE AMOUNTS OF SUNDRY CREDITORS HAVE BEEN WRITTEN OFF AND IT SEEMS THAT HAS LED TO THE WRONG CONCLUSION BY THE AO BECA USE NORMALLY CREDITOR WOULD BE ON THE CREDIT SIDE. BUT IT IS A C ASE OF ADVANCES MADE TO THE SUPPLIERS. SCHEDULE 15 OF THE PROFIT & LOSS ACCOUNT VERY CLEARLY SHOWS THAT A SUM OF RS.26,97,048/- HAS BEEN WRITTEN OFF AS EXPENDITURE. EVEN BEFORE AO IT WAS POINTED OUT AS E XTRACTED ABOVE PARA 2.5 THAT AMOUNTS HAVE BEEN WRITTEN OFF. THE LD . CIT[A] HAS DEALT WITH THIS ISSUE VIDE PARA 3.3.3 WHICH IS AS UNDER: 3.3.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. AS CAN BE SEEN THE AMOUNTS ARE DEBIT BALANCES OF TRADE CREDITORS AND CANNOT BE TAXED UNDER SECTION 41 OF T HE IT ACT. SECTION 41 WILL NOT BE APPLICABLE IN THIS CASE. IN FACT THE CLAIMED EXPENSES WILL BE ALLOWABLE AS BUSINESS EXPENSES UNDER SECTION 37. HOWEVER SINCE THE ORIGINAL ASSESSMENT HAS BEEN COMPLETED UNDER SE CTION 143(3) AND THE REOPENING HAS BEEN HELD TO BE INVALID AND THERE IS NO REASON TO DECIDE THIS ISSUE ON THE MERIT OF THESE ADDITIONS. FROM THE ABOVE IT IS CLEAR THAT LD. CIT[A] HAS CLEA RLY OBSERVED THAT DEBIT BALANCE CANNOT BE TREATED AS INCOME U/S.41, T HOUGH FINALLY HE HAS NOT ADJUDICATED THIS ISSUE ON MERIT IN VIEW OF HIS DECISION ON REOPENING OF THE ASSESSMENT. IN OUR VIEW, EVEN ON M ERITS ASSESSEE HAD A VERY GOOD CASE AND THE AMOUNT WHICH WAS WRITT EN OFF COULD NOT ITA NO.4667 OF 2010 7 HAVE POSSIBLY TREATED AS INCOME U/S.41[1]. ACCORDIN GLY, WE FIND NOTHING WRONG IN THE ORDER OF THE LD. CIT[A] AND CO NFIRM THE SAME. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 4/10/2011. SD/- SD/- (VIJAY PAL RAO) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 14/10/2011. P/-*